Britain's inheritance tax system is one of the worst in the world, and needs
reforming

Britain has one of the most onerous inheritance tax regimes in the world. At present, individuals’ estates are taxed by up to 40 per cent if they exceed a value of £325,000 – the threshold is doubled for married couples. Recent research has shown that this is less generous than in any other country, with the sole exception of Ireland. In the US, the threshold stands at £3.2 million, and, yet, is still a source of considerable political controversy.

If only the Americans knew how lucky they are. Here in the UK, rising house prices have meant that more and more people who are technically asset-rich, but in fact cash-poor, find themselves suddenly lumbered with death duties. Worse still, Treasury forecasts suggest that the number of families required to pay inheritance tax will rise by an astonishing 35 per cent this year, to 35,600. That number is expected to jump to 43,811 next year. And over the next five years, a demoralising total of 262,000 families will find themselves levied.

This prospect is particularly galling considering that the Conservatives once promised to reform the system. In 2007, George Osborne said he would raise the threshold to £1 million – an announcement that delivered a big bounce in the polls and heralded a new period of popularity for the Conservatives. Unfortunately, this worthy idea was blocked once the Tories entered coalition with the Lib Dems. Mr Osborne has frozen the tax at 2009 thresholds until at least 2018.

All taxes are unpleasant, but the death duty is doubly so. As its popular nickname suggests, it hits families in their moment of grief – and it forces them to pay tax on an estate that the previous owner had presumably been paying tax on for most of their life. Many people buy a house, save and invest in the hope of passing the rewards on to their children. Accumulating wealth to help out the next generation is not only a very human instinct, but also one that encourages the kind of aspiration that drives the private economy forward – contributing to the well-being of the whole of society. The time has come to reform this tax, both to reflect changing house values and to incentivise ambition.